Will Releasing Pensions lead to a lot more BTL

Carlos77

With the news of the changes in pension rules, and being able to release the pot rather than buy an annuity, do we think a lot of people will start taking the cash and investing in BTL property to get better returns than an annuity will give, and the additional bonus of handing it to the kids to inherit, rather than falling into a black hole once you die?

IveSeenTheLight

Carlos77 wrote: »

With the news of the changes in pension rules, and being able to release the pot rather than buy an annuity, do we think a lot of people will start taking the cash and investing in BTL property to get better returns than an annuity will give, and the additional bonus of handing it to the kids to inherit, rather than falling into a black hole once you die?

I had the same initial thought.

Why take an annuity gambol that loses it value for your next of kin should you die, wlse leave an estate which can be disseminated.

wotsthat

It was already possible to extract cash from a pension without the need to take an annuity.

I don't think it'll make much difference.

chewmylegoff

In order to extract enough money from your pension to buy or put down a significant deposit on a house you're going to incur lots of tax on the withdrawal so probably not. I expect most people with enough money in a pension scheme who want to use the money to fund a property purchase would do so using their 25% tax free lump sum allowance - so the changes will make little difference.

Jason74

chewmylegoff wrote: »

In order to extract enough money from your pension to buy or put down a significant deposit on a house you're going to incur lots of tax on the withdrawal so probably not. I expect most people with enough money in a pension scheme who want to use the money to fund a property purchase would do so using their 25% tax free lump sum allowance - so the changes will make little difference.

I'm not sure about that to be honest. For most people, the 25% lump sum would be a hefty deposit on a property, but probably wouldn't fund outright purchase. That means that there would be a mortgage to be serviced. This both eats into the ability of the property to provide an income, and means that there's a debt against the property, which in turn reduces the amount available for beneficiaries (albeit for some, the IHT issue will partly negate this).

The ability to unlock the whole fund is a game changer imho. Yes, there will be a hefty tax charge against it, but the ability to draw the whole fund down makes outright purchase of a property a vaible option for many more people at retirement. I suspect that there will be many people quite happy to take the tax hit in return for being able to purchase an "investment" that is likely to achgeive capital growth, will not "die" with them, and that can probably generate an income that is likely to be broadly similar to an annuity in the longer term.

Personally, I think that as a society, we need more BTL about as much as we need more payday loan companies. But, I suspect that as a result of this change, that is exactly what we are going to get.

grizzly1911

It will probably lead to an increaser in BTL.

More free cash looking for a home.

How many is the question.

chewmylegoff

Jason74 wrote: »

I'm not sure about that to be honest. For most people, the 25% lump sum would be a hefty deposit on a property, but probably wouldn't fund outright purchase. That means that there would be a mortgage to be serviced. This both eats into the ability of the property to provide an income, and means that there's a debt against the property, which in turn reduces the amount available for beneficiaries (albeit for some, the IHT issue will partly negate this).

The ability to unlock the whole fund is a game changer imho. Yes, there will be a hefty tax charge against it, but the ability to draw the whole fund down makes outright purchase of a property a vaible option for many more people at retirement. I suspect that there will be many people quite happy to take the tax hit in return for being able to purchase an "investment" that is likely to achgeive capital growth, will not "die" with them, and that can probably generate an income that is likely to be broadly similar to an annuity in the longer term.

Personally, I think that as a society, we need more BTL about as much as we need more payday loan companies. But, I suspect that as a result of this change, that is exactly what we are going to get.

You've always been able to access the whole fund as long as you're prepared to pay 55% tax. Not many people do that and I doubt people will be tripping over themselves to do it at the lower rates of 40% or 45%.

People with a lot of money - eg £1m - in their pots have enough to buy a property outright with their tax free lump sum if they want to.

Andy_L

What's the current profit margin on a BTL bought now?

The pensioner would need an income so will need profit on the rental income rather than covering the costs and relying on HPI to make a capital gain 10-odd years down the line

Graham_Devon

Apparently it's already happening. Well, according to financial advisors, this is a question which is now being raised and planned by "many".

What constitues many I have no idea, was just on the radio.

TheFactory

Andy_L wrote: »

What's the current profit margin on a BTL bought now?

The pensioner would need an income so will need profit on the rental income rather than covering the costs and relying on HPI to make a capital gain 10-odd years down the line

Well that depends on where in the country you invest, I get 30% gross ROI after mortgage costs, up north......

antrobus

The Daily Mail says;

House prices set to soar by 30 per cent as savers raid pension funds to invest in property
http://www.dailymail.co.uk/news/article-2586692/House-prices-set-soar-30-savers-raid-pension-funds-invest-property.html